The order presents several problems for the industry.
First, there are three missing players in this drama: the “bad guy” who engaged in undisclosed OBA(s) and who hasn’t apparently been sanctioned, the IAR’s supervisor who presumably could have ordered him to complete those missing forms, and the CCO’s supervisor.
Second, it’s not clear how the RIA violated the Advisers Act by failing to adequately monitor compliance with the BD’s policies. The RIA appears to have taken on an unnecessary obligation, and a failure to comply with an unnecessary obligation doesn’t mean that the RIA’s compliance program wasn’t reasonable. Indeed, firms often fail to follow their procedures, and they are not sanctioned. If there were investor protection considerations, presumably, the BD was responsible for enforcing its own policies.
Finally, with regard to the CCO, many questions are unanswered: (1) what steps did the CCO take that were insufficient; (2) did he have the actual responsibility, ability or authority to take “sufficient” steps; (3) why didn’t he take additional steps; and (4) how did the order take into account that the CCO eventually reported the OBA?
‘Enforcement 40’ for 2020
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